Airlines to short

Often the price of NYMEX WTI crude is used when discussing the impact of higher oil prices on the airline industry. However a better approximation for jet fuel that is widely quoted in the financial news media is the brent oil price.

http://www.barchart.com/commodityfutures/Crude_Oil_Brent_Futures/CBJ11

I also note that the price of heating oil and RBOB Gasoline are also good proxies.

http://www.bloomberg.com/energy/
http://www.bloomberg.com/markets/commodities/futures/

Stockcharts: symbol $HOIL for heating oil (continuous contract).

Jet fuel quote
http://noir.bloomberg.com/apps/quote?ticker=JETINYPR:IND

Jet fuel chart
http://noir.bloomberg.com/apps/cbuilder?ticker1=JETINYPR:IND

Note:
1 barrel of oil = 42 gallons
source:
http://en.wikipedia.org/wiki/Barrel_(unit)

so using yesterday's price of 322.71 cents for a gallon of jet fuel, this equates to $135.53 per barrel of jet fuel.

This is obviously much higher than both brent oil (about $119) and WTI crude (about $99.10)
 
"American Airlines orders 460 new planes"

http://finance.yahoo.com/news/American-Airlines-orders-460-apf-1966218451.html?x=0&.v=2

"The airline expects the new, better-mileage planes will save money on fuel and provide more enticing amenities to passengers."

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Comment: AMR has been one of the worst airline stocks since the sector peaked in November 2010.

Fuel efficiency sounds like a good reason for ordering so many planes.

However at some point the company needs to actually make a profit. (Shocking concept, I know).
 
The strategy outlined in the first post has worked very well in 2011.

Given the recent poor performance of oil-sensitive stocks, especially airlines, it would be reasonable to expect outperformance versus the S&P 500 in the short-term.

However I would see any short-term bounce / relative strength as an opportunity to add to existing positions.

For now, the thesis remains in tact: loose monetary conditions may be good for most US equities, however this will result in underperformance by oil-sensitive stocks, especially airlines.

***

Review of oil sensitive stocks, in approximate order of worst to not-so-worst

DAL bad earnings 27 July
LCC (as far as I know) no fuel hedging
AMR bad earnings in July, too much debt
JBLU bad earnings 26 July
Air France bad earnings 28 July
LUV bad earnings 21 July
UAL bad earnings 21 July
GOL bad update 28 July
CCL hurt by RCL’s bad earnings 28 July

F
GM
RYAAY bad earnings in July

PCAR bad earnings 26 July
OSK bad earnings 28 July
NAV bad earnings earlier in the year

Other stocks to consider:

Smaller airlines RJET, HA, ALGT, SAVE
hotels: MAR, H, HOT, HST,
not strong but not weak airlines CEA, ZNH, LFL
KNX,
car hire: HTZ, ZIP, CAR, DTG
casinos: LVS, MGM and other smaller casinos
Stronger airlines ALK CPA
Airline subject to takeover bid TAM
 
Given Friday's strong performance by many airlines (especially US-based companies), I am anticipating outperformance by this sector for the next few weeks / months.

I'm looking to short an oil-related futures contract (as a multi-week trade) to hedge against this possibility.

CL ($WTIC) is probably a bad idea because of the known problems (delivery issues at Cushing) with this as a benchmark, and its relatively poor correlation with jet fuel.

I'm thinking of shorting either brent oil, heating oil or gasoline.

At this stage I am favoring gasoline, because I would expect that out of those three instruments, it would have the strongest correlation with jet fuel.

If anyone has some magical trading software that could calculate the correlation coefficients of these three with jet fuel
http://www.bloomberg.com/apps/quote?ticker=JETINYPR:IND
I would be most appreciative.

Stockcharts symbols
$HOIL (heating oil)
$GASO (gasoline)
using BNO as a proxy for Brent Oil, however roll yield may create havoc with BNO and make it an unreliable benchmark.
 
Quote from SnakeEYE:

can`t get it.how any sort of correlations and ratios could be of any value for day trading :confused: :confused:
More...

I'm not daytrading airline stocks. I have a much longer term view.

These ratios and correlations are very useful for that longer term view.
 
Quote from m22au:

I'm not daytrading airline stocks. I have a much longer term view.

These ratios and correlations are very useful for that longer term view.
More...

I see.

Thanks and good luck!
 
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